Further to Felix Salmon and Jim Surowiecki’s comments on the myth that Detroit auto workers cost $73 per hour to employ – that includes the healthcare and pension benefits of former employees – it seems unfair to me to blame the United Autoworkers union for Detroit’s plight.
Of course a union tries to get high wages and benefits for its members – that is what unions are for. The fault for Detroit’s relatively high labour costs ultimately lies with the managements of these companies, or to be more exact the former managements, for taking on liabilities that they could not afford.
The story of how Detroit – particularly General Motors – was persuaded by the UAW to create a private welfare state for workers is recounted in Roger Lowenstein’s book on the pensions crisis, While America Aged, which I reviewed for the FT in July. It is worth reading for the story of Walter Reuther, the UAW leader who built healthcare and pensions benefits into employment conditions.
GM and others did not spot at the time that, if their companies started to shrink at any point, they would be trapped by a growing burden of indirect costs for former employees. In the past few years, that has turned into one of their most pressing problems compared with foreign-owned car companies.
The relevant question is how co-operative the UAW has been in helping to correct the problems of the past. There too, it has shown some vision in striking deals to get retiree benefits off the balance sheets of the big three. So I think the UAW has a decent story to tell, despite Detroit’s woes.
